Nintendo, Ever the Toy Company

No matter how much attention you've paid to Nintendo, or how much insight you can glean from within the company itself, there are times when the industry's most secretive and opaque company still manages to be baffling. In this specific instance I refer, of course, to the discontinuation of the NES Classic Mini - a diminutive reworking of its groundbreaking NES/Famicom console with many of its best-loved games built in, which sold north of 1.5 million units despite chronic stock shortages. Now, despite continuing strong demand for the system, Nintendo has decided not to bother making any more of them.

There has been no official explanation offered for this, and in the absence of such, several unofficial explanations are doing the rounds. One which has even been picked up and repeated by staff within Nintendo (though I can find no evidence of it actually being communicated internally from Japan) is that the production lines for the NES Classic are needed for manufacturing Switch consoles, positing that the device was only ever intended as a stopgap to keep factories busy in between the shutdown of Wii U production and the ramp-up of Switch.

That makes a kind of sense on the face of things, but rather ignores the reality of how manufacturing works. The NES Classic was composed entirely of off-the-shelf components - it didn't actually have the innards of a NES, being based instead on an absolutely bog-standard ARM system-on-chip. The only custom part of the system was the plastic casing, which could easily be made by any one of thousands of factories who build devices like this. While it's certainly plausible that the exact factories which built NES Classics have seen their production lines repurposed to fulfill higher demand of Switch, anyone with the slightest passing familiarity with hardware manufacture knows that Nintendo could have had new production lines for NES Classic systems up and running at less complex and advanced factories within weeks if not days.

"Unless there's some bizarre quirk in the figures and there's actually a huge NES software market out there that NES Classic was undercutting, Nintendo is absolutely leaving money on the table with this decision"

In other words, while bringing Switch online could absolutely have created a blip in availability of the NES Classic, the reality is that the system could be shipping healthy volumes to fulfill market demand again, if Nintendo actually wanted to. Supply chain reasoning doesn't explain this decision; at best it's an excuse, at worst a fabrication being peddled to retailers annoyed at persistent stock shortages of a popular item. Somewhere within Nintendo, a decision has been made that flies in the face of basic commercial logic; the company has chosen to stop supplying a product for which there remains significant demand.

Why? One explanation might be that the NES Classic simply wasn't very profitable. Sold at around $60, there's no question that margins on the hardware alone would have been fine; bought in bulk, the components inside the device would have summed up to a small fraction of that price. Now, where things get a little questionable is when you consider the value of the NES software included with the device; if you value that software according to its price on the Virtual Console online store, then yes, NES Classic was a bit of a bargain. However, that makes the dodgy assumption that consumers would have bought more than a couple of those software titles when sold individually. We don't know what the actual sales of NES software on Virtual Console are like, of course, but I'm struggling to imagine that the number of consumers willing to drop $30 or more on NES software titles on Virtual Console comes anywhere close to the number willing to buy the NES Classic. Unless there's some bizarre quirk in the figures and there's actually a huge NES software market out there that NES Classic was undercutting, Nintendo is absolutely leaving money on the table with this decision.

Similarly, it's hard to believe that NES Classic has been removed from the market because of fears that it would take the wind out of the sails of the (eventual) launch of the Virtual Console service on Switch. Moreover, any of these theories which essentially boils down to "Nintendo wants to focus on Virtual Console" is challenged by the pretty well substantiated rumours of a SNES Classic launching this Christmas. SNES software, representing something of a golden age for Nintendo, is arguably much more desirable than NES titles for a much wider range of consumers, and far more likely to act as an incentive to spend money on Virtual Console's digital store.

One possibility, of course, is that NES Classic was just testing the water - checking to see if there really was demand for this kind of retro gaming product by launching the absolute bare minimum and watching what happened. The minimum viable product approach isn't common in hardware for obvious reasons, but perhaps this was an example of it in action? Having watched third parties flood the market with retro consoles designed to work with software for NES, SNES and others, Nintendo may have decided to dip its toe in the water, cautiously checking market conditions before committing to a much more fully-featured and impressive retro gaming device.

"Nintendo's response was seemingly, 'Well, that's nice, but we don't want to make any more money on that'; you can almost hear the slight popping noise of industry executives' eyes all simultaneously bulging with incredulity"

If so, we might expect the SNES Classic to be a lot of things the NES Classic was not; a networked device, at least, with its own connection to the Virtual Console store so that consumers can buy new games or packs of games. As long as the initial offering of pre-installed games remains generous, that could be an enormously successful prospect and a really effective way of generating income from Nintendo's prodigious back catalogue. However, none of the rumours around SNES Classic suggest that will be the case; it would certainly make sense, but as of right now, the implication is that SNES Classic will be a fairly straightforward repeat of its older sibling. Whether that comes all the way down to repeating the stock shortages and rapid discontinuation remains to be seen, of course.

One thing to bear in mind through all of this is that Nintendo's self-image remains at a tangent to that of every other company in the games business. Nintendo intrinsically sees itself as a toy company - or at least, doesn't see there being quite as big a gap between "toy company" and "game company" that other firms in the industry would insist upon. That's informed Nintendo's decision making in many regards over the years, and this may simply be one of the most glaring examples of "toy company thinking" in action; creating something cool for the Christmas market, shipping a certain amount of it, making your money and then repurposing the production lines for next Christmas' cool thing. If so, at least there's hope that stock of SNES Classic will be in greater supply (since a toy company would use sales of the last product in a range to guide its expectations for subsequent products), but from Nintendo's perspective the NES Classic is over and done with; last Christmas' phenomenon can't be expected to continue selling next year, after all.

Even to a market used to dealing with stock shortages (there hasn't been hair nor hide of PS4 Pro, PSVR or Switch in Japanese retailers for weeks, and why yes, I am actually a little bitter about that), this is a strange and uncomfortable way of thinking. NES Classic devices were changing hands for up to five times their retail value on eBay, and Nintendo's response was seemingly, "Well, that's nice, but we don't want to make any more money on that"; you can almost hear the slight popping noise of industry executives' eyes all simultaneously bulging with incredulity. The upside is that the success of this experiment means more such toy-like experiments will be forthcoming in future years. The downside is that what could be a great new way for the industry as a whole to exploit its back catalogue probably isn't going to come to pass if Nintendo sees this as a range of toys and not a platform play.